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ETFs following retail and consumer discretionary stocks have been among the top sector performers in 2012 but have faltered along with the S&P 500 in May. The sector regaining its footing would be a positive sign for the overall market and sentiment on consumer spending, which dominates the U.S. economy.

“The floor looked to be collapsing for the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) last Friday but trading on Monday was very positively with a key-day-reversal. That bullish turn occurred just above the 200-day exponential moving average and constitutes a successful test,” said Investors Intelligence technical analyst Tarquin Coe in a newsletter Wednesday.

“Momentum is turning up as is the relative chart versus the S&P 500. The relative trend has been steadily rising for many months,” he wrote. “If the equity sell-off is bottoming, as the S&P 500 action, as well as this ETF, are suggesting, we would need to rebuild our long exposure to avoid being left at port.” [What Consumer ETFs are Saying About the Market]

“Given that about two thirds of economic activity is fueled by consumer spending, investors should closely examine the economic backdrop and try to understand what the market presumably already is pricing into consumer discretionary-related stocks,” Morningstar says in an analyst report on XLY.